5 Investment Strategies Employed by Property Investors

Just like there are no guarantees in property investing, there is no single right way to succeed as an investor. In fact, the best property investors use a mix of strategies to maximise their returns and build their wealth. Here we explore five of the most popular investment approaches and how they could help you grow your portfolio.?

Strategy #1: Negative gearing

This is where the money you make from an investment property is less than what you pay to maintain it. As such, you actually make a loss on the property and regularly need to help cover its expenses. This loss can then be claimed as a tax deduction, helping reduce your taxable income and minimising your tax liability.

As one of the main benefits is a tax break, this strategy is particularly appealing to investors earning high incomes. However, it is less beneficial to others, who must rely on capital growth to cover their losses – and realise a return. Also, if your financial situation changes, you may not be able to continue covering the property’s expenses, potentially forcing you to sell it.

Strategy #2: Positive gearing

This is basically the opposite of negative gearing, where your investment property provides you with an additional income stream. This money can be used to supplement your lifestyle or put toward a deposit for your next property. As such, this strategy can be especially effective for investors looking to grow their property portfolio quickly.

While the primary focus for positively geared properties is producing rental income, many also have good capital growth potential. That said, properties offering higher rental yields can be difficult to find and tend to experience slower capital growth. You will also need to be conscious of the tax implications of the income produced by a positively geared property.

Strategy #3: New builds / off-the-plan

This is where you target new developments, usually in areas experiencing significant population growth. These properties come with added incentives, like significant tax deductions (e.g. depreciation), and are often supported by Government grants. You may also be able to negotiate a better purchase price, particularly if the developer has a pre-sale quota they need to meet.

These benefits, combined with significant local demand, can see new build and off-the-plan properties significantly increase in value on completion. However, this is definitely not guaranteed, and some actually decrease in value during development, creating issues at settlement. There is also the potential for the development to be delayed, or for the developer to go bust before completion.?

Strategy #4: Buy and hold?

This is where you simply buy a property and hold onto it for many years. The hope is that, over time, the property will grow in value and provide a significant profit when finally sold.?

This is a long-term, low-risk strategy that can provide reasonable returns (conventional wisdom says property prices double every decade). However, capital growth is not guaranteed, and having your money tied up for so long can limit your options. Properties also need to be selected carefully, based on the long-term growth potential and held for a full property cycle.

Strategy #5: Flipping

This is where you buy a property with the specific intention of renovating it and reselling it. This is usually done quickly, to minimise “holding costs”, and with a clear focus on the resale potential.?

When done well, flipping can produce great short-term cash flow – however, it is usually very hard to make the numbers work. Properties with flipping potential are increasingly rare and your renovation budget must be tightly controlled. You also need to factor in selling costs and potential capital gains tax, which can significantly impact your profits.

Setting your investment strategy

The best strategy – or strategies – for you will depend on a range of factors. For example, your financial situation and risk appetite will make specific strategies more suitable for you. Similarly, certain approaches will be more effective at achieving certain goals.

If you need help planning your investment strategy, or just want more information on different approaches, call Search Party Property. We have over 20 years of investing experience and can work with you to tailor a plan to your unique requirements. Contact us today to set up your free investor readiness check.